We often hear of success stories where jobs are created, companies are formed through strategic alliances and funds are raised for high potential start-ups (HPSUs). Some of those successes had solely utilised social media and social networking. I remember a case in 2010 where one tweet resulted in an Irish businessman becoming a Director in an Irish company.
2010 was also the year Frank Hannigan became Executive Chairman of Goshido, an Irish Software Start Up company.
- Frank single-handedly used LinkedIn in order to raise $230,000.
- This all happened in eight days.
Goshido allows teams to break projects into their moving parts, and ensure that the team can keep all those moving parts moving. The software embraces the principles and concepts that drive the most powerful methodologies in current use to ensure that organisations collaborate well.
Seed Funding the Goshido way
Frank sent out 700 messages to potential investors, which resulted in over 200 responses within a week.
Frank comments, “Attracting investment is all about trust, LinkedIn is the largest collection of trust agents on the planet. We reduced the cost and time involved in fundraising 75% by using LinkedIn as our funding vehicle.”
I got in touch with Frank and asked him about the experience, and any advice he would have for someone thinking of a similar venture:
What enticed you to look to your online network for this funding?
Really it just seemed natural – LinkedIn is a destination for people who want to do business. It was an efficient way to reach my business network. I would not have felt cool making the approach on other social media platforms.
How did you decide to raise the money, once that decision was made?
Our plan was to raise the money from 10 people each putting €25k on the table. It did not work out as neatly as that – but it was close enough to the plan. We got BES (Business Expansion Scheme) status – allowing us to offer investors 100% of the upside with only 58% of the downside.
Why specifically LinkedIn?
I have a strong network – I think it was around 700 then – the network is now 1,675, and those 1st connections have themselves 1st connections of over 461,000 people, and in turn their 1st connections amount to 10.65 million people. That’s a hell of an audience for a strong investment proposition.
What was the response like?
It was staggering. The immediate response from 1st connections and those who they recommended the investment to meant that we almost completed the round in just over a week. The plan was to complete in 12 weeks – so that is a remarkable outcome.
The response from twitter and traditional media in the following 12 months was amazing too. What we thought was pretty straight forward, turned out to be one of the first fundraising events in the world to use LinkedIn.
Did you get all the funding your were seeking?
Yes we raised €450,000 in total.
Is this a system of fundraising you would recommend and why?
Yes I think this is the way funding will increasingly happen for seed and early stage rounds. At these rounds it really is about trust in the team – there are very few other metrics to consider. Professional investors don’t really offer that much of an advantage at this stage. Speed is key – crowd-sourcing, if executed well, can deliver that speed.
What is your key message to start ups or existing organisations who may consider raising much needed funds in this way?
Be compliant! Washington has dramatically reduced SEC (Securities and Exchange Commission) controls on crowd-sourced funding in 2011. They protect investors as much as they can. however they are relaxing the rules around crowd-sourcing finance.
Goshido offered information to Irish taxpayers – but anyone using Social Media should be very aware of the risk of falling foul of the SEC. It is still a good idea to have both a lawyer and an accountant advise you in order to ensure you break no laws and to optimise the tax efficiency of your transaction.
Thank you Frank, for sharing your story with us. Check out this article for a short piece on the recent changes in crowd-funding in the USA.